The Effect of Privatisation on Financial Performance of Firms Listed at the Nairobi Securities Exchange

Abstract

Hongo (2006) while looking at the effect of privatization rate on SOE financial performance where she found that the rate has no effect also observed that no study had been undertaken in Kenya on the effect of privatization on the already privatized former state owned enterprises (SOEs) listed at the NSE.Therefore this study analysed the effects of privatization on financial performance of former state owned enterprises that are now listed at the NSE. The study employed descriptive survey design on a population of privatized former SOEs quoted at NSE. The study used secondary data sources in collecting information; internet, periodic report and brochures for a period of five years before and five years after privatization of each SOE. The data was analyzed for variation using a regression model where the independent variable performance is regressed against dependent ratios i.e. profitability ratio, liquidity ratio, leverage ratio and activity ratios, a t-test statistic, to test the hypothesis on whether there is any significance difference in financial performance after privatization was also performed. The study concluded that privatization had a positive impact on the financial performance of these firms as it increased their profitability and activity ratios. The results of the study also showed varied performance results from the other ratios .The recommendation of the study is that the managers of these SOEs should focus more on attracting foreign direct investments into the firm and the government should relinquishing all of their control on the privatized firms and let them operate on their own.